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What 5 elements are embodied by the insuring agreement?
- The policy has:
- 1. an agreement
- 2. between legally capable parties
- 3. for a consideration
- 4. demonstrating intent
- 5. to do something that is legal
What is the principle of indemnity?
the insured shall not receive more than the actual loss suffered
Define proximate cause.
the active efficient cause that sets in motion a train of events which brings about a result without the intervention of any other force started and working actively from a new and independent source
Describe 2 primary ways insurers adapt the Basic Fire Policy to their own purposes.
To make policy-issuing easier, insuers create standard policy documents containing info common to most insureds. They tailor policies to specific needs by combining standard w/others. 2 ways to do this:
- 1. Specific Policy
- - builds on the standard policy that includes the insuring agreement, all normal exclusions & limitations, and the Statutory or General Conditions
- 2. Modular Policy
- - is the sum of several parts, or modules
Define indirect loss and state the most common type of indirect loss.
Direct loss refers to the value of they physical property that is damaged or destroyed.
Indirect loss arises from direct loss; it encompasses other loss suffered as a consequence of the damage to or destruction of the physical property. ie. lost revenue or reduction of insured's total earnings
IE: Direct=building // Indirect=lost rent income
Why is it important for an insured to accurately describe the location of movable property?
An insured's property may be kept at any of several locations, but property of the type described in the policy at a location not described in the policy will not be insured.
What is the difference between one item and one object. Provide an example.
- Property at 1 location = can be described in 1 item
- - does not mean the property comprises only 1 object
- - it means the amt of insurance for the item applies to all objects within the class of objects described in the item
ie. an "item" can be the Office Contents item in a commercial policy - it includes desks, chairs, stationary, pens, pencils, etc that need not be identified individually to be insured under the amout of insurance applying to this item
ie. an "object" that may be at the same location but does not fall into the same description - such as a woodworking lathe
Define occupancy in the context of an insured building or structure.
In the context of property, occupancy means the use to which the premises is put
- does not refer to the identity of the people occupying the premises
How does the Basic Fire Policy give effect to the principle of indemnity?
The Basic Fire Policy gives effect to the principle of indemnity by making the amount payalbe to the insured the least of
- - the actual cash value (ACV) of the damaged or destroyed property at the time of loss
- - the interest of the insured in the property; or
- - the amount of insurance
When assessing the actual cash value (ACV) of lost or damaged property, how is depreciation determined?
ACV is not defined in the contract. Generally it is the cost of replacing the property, less any depreciation to it.
- Depreciation is determined by several factors:
- - physical condition of the property
- - its resale value
- - its normal life expectancy just before the loss
- Can be affected by:
- - market prices (ie reduction in value b/c obsolete)
ACV serves the principle of indemnity by denying insd's a profit from their losses
Describe the circumstances in which loss of or damage to electrical devices or appliances is excluded.
Loss to electrical devices or applicances is excluded if caused by lightening or other electrical currents. But loss from any ensuing fire is covered.
How does the Application of Heat Exclusion apply when fire spreads beyond the excluded property?
Loss to goods caused by any process involving the application of heat is excluded. But the policy will cover damage to other insd property damage if the fire spreads.
ie. heat is applied in laminating process; a thermostat malfunctions and the items being laminated catch fire. Fire and smoke cause damage to the goods being laminated as well as other property in the area. The goods being laminated are not covered but the other property is.
Describe the types of event that would be listed under the War Risks Exclusion.
Loss arising from foreign or civil war or riot or other civil disturbance is excluded.
What is the purpose of the Nuclear Liability Act?
- 2 clauses:
- 1. both direct and indirect loss caused by nuclear incident and 2. radioactive material are excluded
- - except for ensuing loss directly from fire, lightening, or explosion of natural, coal or manufactured gas
Purpose of exclusion: individual coverage under property insurance policies is redundant in view of the absolute liability of the operator in the Nuclear Liability Act
What steps should an insurer take to avoid ambiguous wording on an insurance contract?
People responsible for issuing policies should have a thorough knowledge of their company's "standard" wordings.
Under the Additions or Alterations Exclusion, what type of loss or damage is covered, and what type is excluded?
Loss to a building or its contents during & resulting from alterations or additions is excluded unless written permission has been granted for them; normal repairs are allowed without permission
What is the significance of the word "while" to the Vacancy, Unoccupancy, Disuse Exclusion?
Loss to an insd building/contents is excluded while the insd knows the building to be vacant or unoccupied for more than 30 consecutive days.
The word while triggers the exclusion as soon as vacancy, unoccupancy or disuse occurs and for as long as it persists. The policy is not terminated, however, and coverage is automatically reinstated as soon as the vacancy/etc ends.
Explain the difference between unoccupancy and vacancy.
Unoccupied all occupants are absent from the property but intend to return.
Vacant is the absence of all occupants, none of whom intend to return
Define the flashpoint of a liquid.
the lowest temperature at which the liquid gives off sufficient vapours to form an ignitable mixture with the air; will ignite on contact with a flame or spark
What are the arguments for and against coverage of loss or damage caused by by-laws?
Loss due to a by-law, regulation, or law regulating zoning or the demolition, repair or construction of buildings is excluded.
A by-law may prohibit reinstating a property to its pre-loss condition b/c of old material, old construction style.
Only the extra cost of meeting the new standard is excluded - insd remains entitled to recover the value of the actual damage to the insured property, even if the by-law prohibits bringing it back to its pre-loss condition.
MC: The principle of indemnity provides that the insured:
- - be returned to as nearly as possible to the financial position he or she enjoyed immediately prior to loss
- - shall not receive more than the actual loss suffered
MC: Subrogation is the substitution of one party for another:
- as creditor
MC: The proximate cause of a loss is best defined as the:
- event that initiates the continuous chain of events leading to the loss
MC: This type of policy builds on a standard policy that includes the insuring agreement, all normal exclusions and limitations, and the Statutory or General Conditions:
- Specific policy
MC: Which of the following is the best general definition of actual cash value?
- Replacement cost less depreciation
LA (10): Explain the purpose and general characteristics of exclusions in insurance policies.
- Exclusions remove certain losses from the policy's coverage
- - they may relate to specific circumstances
- -- or causes of an insured peril
- -- or they may relate to specific types of property
- - they may be temporary
- -- or permanent
- - they may exclude only a part of the coverage
- -- or render the entire policy inoperative
- - an exclusion never expands policy coverage
- -- but always restricts it
- in some cases, a limited exclusion may show that there is some coverage in other circumstances
LA (5): Outline what is excluded under the Nuclear Incident Exclusion.
- both direct and indirect loss caused by nuclear incident is excluded
- - except for ensuing loss directly from fire
- -- lightening
- -- or explosion
- -- of natural coal or manufactured gas
- in the second clause, direct and indirect loss by contamination by radioactive material is also excluded
LA (10): Outline what is excluded under Alterations and Additions Exclusion.
- - loss to a building
- -- or its contents during
- -- and resulting from alterations
- -- or additions to the building is excluded unless written permission has been granted for them
- -- normal repairs are allowed without permission
- - only losses arising from the construction of the alteration
- -- or addition are excluded
- - if the policy covers several separate buildings
- -- their contents
- -- or both
- -- then the exclusion applies only to the locations that are involved in such work
EssayQ (30): You are a claims adjuster working on a recent fire claim. Your client is a garage specializing in auto repairs. Much of the garage was destroyed in the fire, along with many auto parts in stock, equipment and tools. It will take up to 6 weeks to repair the facility, and as a result the garage will need to shut down the business.
EssayQ (6): Identify and explain the direct and indirect losses that your client experienced in this loss.
- Direct loss refers to the value of the physical property that is damaged or destroyed
- - the direct loss the garage suffered includes
- -- the garage itself
- -- tools
- -- machinery
- -- automobiles
- -- other physical possessions
- - Indirect loss arises from direct loss
- -- it encompasses other loss suffered as a consequence of the damage to or destruction of the physical property
- - Indirect loss the garage may have suffered includes
- -- business interruption (b/c garage is closed), with a resulting loss of
- -- potential and existing customers
- -- and lost revenue
- -- or income or the reduction of the insd's total earnings
EssayQ (5): If they were burned in the fire, would the following items be covered under a Basic Fire Policy?
- 2 antique automobiles
- Excluded property
- - the 2 antique vehicles will not be covered, as they were considered excluded property
- - excluded property includes automobiles, tractors and other motor vehicles
- - the exclusion removes certain types of property from the policy coverage
- - by identifying types of movable property that may present unusual hazards, require specialized insurance, or raise u/w issues
- - it also encourages an insd to seek insurance more specific to such property, which benefits both the insd and insr
- - the garage would claim the vehicle loss under its auto policy
EssayQ (4): If they were burned in the fire, would the following items be covered under a Basic Fire Policy?
- a computer and cash register at the front desk
- Electrical Device Exclusion
- - both the laptop and the cash register would be covered
- - loss to electrical devices or appliances is excluded if caused by lightening or other electrical currents
- - but the computer and cash register were destroyed by ensuing fire, which is not excluded
EssayQ (5): Would your client's repairs still be covered if the fire occurred under the following conditions:
- The fire was caused by a gasoline explosion by a container holding just more than one gallon of gas
- Volatile Substance Exclusion
- - the loss would not be covered under these circumstances, as loss occurring under these circumstances is excluded while the insd knows there are certain volatile substances in the insd building
- - the exclusion applies to amounts over 1 gallon (in addition to the contents of tanks in vehicles) of gas
- -- benzene
- -- naphtha
- -- or other substance of equal or lower flashpoint
- -- the loss was caused by over 1 gallon of gas
- - the 1-gallon limit includes all substances in the building
- -- excluding any in the tanks of vehicles
EssayQ (5): Would your client's repairs still be covered if the fire occurred under the following conditions:
- the fire was caused by rioters during a civil disturbance
- - the loss would not be covered as loss arising from foreign
- -- or civil war
- -- or riot
- -- or other civil disturbance is excluded
- - a fire loss will not be excluded simply b/c it occurs during a riot
- -- or a civil disturbance
EssayQ (2): Would your client's repairs still be covered if the fire occurred under the following conditions:
- the fire occurred while the insured was on vacation and had closed his business for 6 weeks
- Vacancy, Unoccupancy, Disuse Exclusion
- - the loss would not be covered, as loss to the insured building or the insured property in it is excluded while the insd knows the building to be vacant
- -- or unoccupied for more than 30 consecutive days
- -- the insd was on vacation for 6 weeks and closed the business while away
EssayQ (3): The fire left a fair amount of debris that will need to be removed before repairs can begin. Who is responsible for the cost of the debris removal? Explain.
- without special provision in the policy, the expense would fall on the insured
- the Basic Fire Policy extends coverage to include this expense in the amount of insurance chosen by the insd
- - the extension does not increase the amount of insurance, which covers both insured loss
- -- and any debris removal
List the exclusions contained in the Basic Fire Policy.
- Electrical Devices (caused by lightening/electrical currents unless fire ensues)
- Application of Heat (goods undergoing any process involving the application of heat)
- War Risks (riot, civil commotion, war, invasion, act of foreign enemy, civil war, rebellion, revolution, military power)
- Nuclear Incident (any nuc incident defined in the Nuclear Liability Act, except for any ensuing fire, lightening or explosion of natural/coal/manuf gas; by contamination by radioactive material)
- Excluded Property (money, books of account, securities for money, evidences of debt or title, automobiles, tractors & other motor vehicles, aircraft, watercraft)
- Alterations and Additions (building/contents during alter/add unless written permission given; normal repairs allowed w/out permission)
- Vacancy, Unoccupancy, Disuse (insd's knowledge for 30 or more consecutive days)
- Volatile Substances (insd's knowledge of gas, benzene, naphtha or other substance of = or lower flashpoint, total quantity over 1 gallon, vehicle tanks included)
- By-laws (where by-law makes it impossible to repair or re-instate the property to its pre-loss state)
List Extensions of Coverage contained in the Basic Fire Policy.
- Removal of Insured Property (covers removed property if removal was necessary to mitigate further loss/damage within 7 days only)
- Debris Removal (amt of insurance does not increase and debris removal is not part of actual cash value)
Describe the Insuring Agreement of the Basic Fire Policy.
In consideration of insd's premium, will indemnify insd's property if destroyed/damaged by fire, lightening, explosion of natural/coal/manuf gas against direct loss so caused to an amount not exceeding whichever is the least of:
- - the ACV of the property on DOL
- - the interest of the insured in the property
- - the amount of insurance provided by this policy in respect of the property lost